Sunday, January 04, 2009

This drop in the inflation rate will be tempered by the fact that the GST cut introduced in January 2008 will fallout of the annual inflation calculation starting in January 2009.

Projected weak U.S. growth and moderately tight credit conditions will likely see Canada's economy contract in both the fourth quarter of 2008 and the first quarter of 2009.

Canada's economy is forecast to eke out a mild 0.6% gain this year, down from our previous forecast for a 0.9% increase and to decelerate modestly such that no growth is expected in 2009, significantly slower than our prior forecast of 1.5%.

A moderate, although sustained, recovery is expected in the second half of next year as these restraining factors ease. We forecast that the price of oil price will increase modestly next year from today's level, although prices are likely to remain below 2008's average rate.

The weaker pace of growth and falling commodity prices have lessened concerns about price pressures and we now forecast that the inflation rate will average 0.8% next year, down from the 2.3% expected for 2008.